McBreen and McBreen (Child support)

[2020] AATA 1753

McBreen and McBreen (Child support) [2020] AATA 1753 (19 March 2020)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2019/SC017997

APPLICANT:  Mr McBreen

OTHER PARTIES:  Child Support Registrar

Ms McBreen

TRIBUNAL:Member K Dordevic

DECISION DATE:  19 March 2020

DECISION:

The tribunal sets aside the decision under review and, in substitution, decides that

·from 1 December 2018 to 22 March 2019 Mr McBreen’s adjusted taxable income is varied to $93,968;

·for the period 23 March 2019 until a terminating event occurs in relation to [Child 1], Mr McBreen’s adjusted taxable income is varied to $204,383 per annum and is to be inflated annually commencing on 1 July 2020 and each year thereafter by the Consumer Price Index Amount Weighted Average for the preceding March quarter. 

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent - benefits derived from business – adjusted taxable income of the liable parent varied - decision under review set aside and substituted

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been removed from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

1. Mr McBreen and Ms McBreen are the parents of three children who are in the parties’ shared care. The case was registered with the Department of Human Services – Child Support (the Department) on 23 December 2015 and has been collectable since 21 March 2017.

2. The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of the child support payable. It uses a formula which contains variables such as the parents’ adjusted taxable incomes and their percentages of care of the children. The Act also provides for a departure from the administrative assessment in certain circumstances.

3. On 23 March 2019 Ms McBreen lodged a departure application with the Department. On 29 August 2019 a senior case officer determined that from 23 March 2019 to 31 October 2020 Mr McBreen’s adjusted taxable income is varied to $91,855.

4. Mr McBreen objected to that decision on 9 September 2019. On 14 November 2019 Mr McBreen’s objection was partly allowed, the objections officer determining that:

   ·from 1 December 2018 to 22 March 2019 Mr McBreen’s adjusted taxable income is varied to $93,968;

   ·for the period 23 March 2019 to 30 March 2022 Mr McBreen’s adjusted taxable income is varied to $204,383 per annum and is to be inflated annually commencing on 1 July 2020 and each year thereafter by the Consumer Price Index Amount Weighted Average for the preceding March quarter. 

5. On 18 December 2019 Mr McBreen sought further review with the Social Services and Child Support Division of the Administrative Appeals Tribunal (the tribunal).

6. The tribunal heard the matter on 19 March 2020. Mr McBreen and Ms McBreen appeared by conference telephone. The Child Support Registrar was not represented at the hearing. In reaching its decision the tribunal has considered the sworn evidence of Mr McBreen and Ms McBreen. The tribunal also considered the documentation provided by the Department (folios 1-402), Mr McBreen (folios A1-A417) and Ms McBreen (folios B1-B94).

ISSUES

1. The statutory provisions relevant to this review are outlined in section 98C of the Act, which states that a decision to depart from the administrative assessment may be made if the following three requirements are met:

   (i)that one, or more than one, of the grounds for departure referred to in subsection 117(2) exists; and

   (ii)that it would be:

   (A)just and equitable as regards the child, the liable parent, and the carer entitled to child support; and

   (B)otherwise proper;

   to make a particular determination under this Part …

2. Therefore, the issues which arise in this case are:

   ·     Does a ground exist for departure from the administrative assessment of child support? And, if so

   ·     Would it be just and equitable and otherwise proper to make a particular determination?

CONSIDERATION

A ground for departure

1. Subparagraph 117(2)(c)(ia) of the Act provides grounds for departure if the administrative assessment would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent because of either party’s income, property and financial resources. The central issue in this matter is whether the administrative assessment accurately reflects Mr McBreen’s income and financial resources.

2. At the time Ms McBreen lodged the change of assessment application Mr McBreen was assessed to pay an annual rate of child support of $3,051 based on his 2018 adjusted taxable income and Ms McBreen’s 2018 income estimate of $24,527.

3. The tribunal finds that Mr McBreen’s taxable incomes in the 2017, 2018 and 2019 years were $91,855, $47,132 and $79,906 respectively. Mr McBreen’s 2019 taxable income was made up of $75,000 received in salary and $14,250 distributed from the McBreen Family Trust (MFT), less deductions. Mr McBreen is the sole director of [Company 1], which is the trustee for the MFT.

4. Mr McBreen’s position can be summarised as follows. In the interest of bringing the matter to a conclusion he will accept his child support liability being determined on the basis that his adjusted taxable income is about $93,000 per annum. However, his income tax returns actually reflect his income and financial resources. He stresses is a mere employee of [Company 2], which is trustee for [Trust 1], trading as [Business 1]. He began working for [Company 2] on a base salary and as the business grew his salary also increased. However, he regularly draws on his cash reserves to meet his living costs and child support liability.

5. The tribunal finds that [Company 2] is owned by Mr McBreen’s uncle. Mr McBreen became a director of the company on 10 June 2019, apparently in recognition of his contribution to the business, with a view to restructuring. However, he resigned his directorship on 15 December 2019 for health and work-life balance reasons.

6. The tribunal considered the financial resources available to Mr McBreen, first having regard to the MFT bank statements in evidence.  In the 2019 financial year the MFT received a distribution from the [Trust 1] of $148,487. At hearing Mr McBreen stated that he can only assume that the transfer was made for tax planning reasons; no explanation was provided to him by his uncle as to the reason for the payment. He is adamant that this is not income available to him, stressing that there were no such payments made to the MFT from the [Trust 1] in the 2017 and 2018 financial years.

7. Only $14,00 of the MFT net profit of $138,488 was distributed to Mr McBreen. The other beneficiaries were his parents, an uncle (a retired [Occupation 1]) and his children. At hearing, Mr McBreen confirmed that these beneficiaries do not play an active role in the trust; he simply distributed MFT’s net income as he saw fit. He did not dispute that the distributions made to the children were deposited directly into his personal account and used to meet his daily living expenses. Furthermore, that Mr McBreen, as trustee, distributed this income to other beneficiaries, apart from a modest distribution to himself, is of no great consequence; he did so at his own discretion.

8. The tribunal formed the view that the only reasonable conclusion to be drawn is that the 2019 net income of the MFT is a financial resource available exclusively to Mr McBreen. As to Mr McBreen’s declaration that this was a one-off payment, the tribunal was not persuaded. Certainly, no evidence was provided as to the reason why these funds were transferred to the MFT. Mr McBreen merely speculated that it was for tax planning purposes. The tribunal found his submission on this point evasive and self-serving. Without compelling evidence to the contrary, the tribunal is not persuaded that such distributions from the [Trust 1] will not be ongoing despite Mr McBreen resigning from his position as a director from the company. A finding that he has organised his affairs in such a way as to reduce his child support liability is one open to this tribunal given the facts of the case.

9. Mr McBreen confirmed that [Business 1] made another deposit of $10,000 into the MFT account on 23 December 2019. Mr McBreen stated that this was either a salary payment or bonus payment for the six months that he was a director of [Company 2] Enterprises. He elected to have it deposited into the MFT accounts to minimise his tax obligations.  His evidence suggests that there is considerable flexibility regarding his salary and income arrangements with the [Trust 1] that are not usually available to a mere employee.

10. The MFT also received a deposit $180,000 on 6 June 2019; at hearing Mr McBreen stated that it was the proceeds from the sale of a property in which the MFT held a 50% interest.  Those funds were then transferred directly to a loan held by the MFT, which is for the home which Mr McBreen bought upon separation, now an investment property from which he receives rental income.  The tribunal notes that $179,983 was also deposited into the MFT account on 7 August 2019. Mr McBreen stated this was also the proceeds of a sale of another property in which he held an interest (along with other family members).  He confirmed that he deposits $800 per fortnight from his personal account into MFT’s account are repayment for the loan held by MFT which funded the purchase of his investment property.

11. Mr McBreen advised at hearing that his parents also deposited $180,000 into his account on 10 October 2019. He states that this is a loan, used to fund in part the purchase of his family home and is repayable in full by 30 June 2020. The tribunal notes that in his Statement of Financial Circumstances form dated 13 January 2020, Mr McBreen makes no reference to a liability owed to his parents.

12. Mr McBreen submits that his child support liability should be based on his taxable income only. However, it is clear that in addition to his taxable income he is in receipt of further financial resources that are available to him for the purposes of supporting the children. The evidence before the tribunal suggests that in the 2019 financial year Mr McBreen’s income and financial resources were in the vicinity of $204,383 (taxable income of $79,906 + net income of trust $124,477 ($138,477 - $14,000 already reflected in Mr McBreen’s taxable income).

13. At the time Ms McBreen lodged her application Mr McBreen was assessed to pay $3,453 in child support per annum. Application of income and financial resources of $204,383 to the administrative assessment would result in an increase in Mr McBreen’s child support liability of about $20,346 ($23,799 per annum). As Mr McBreen’s income and financial resources are not properly reflected in the child support assessment, there are special circumstances such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. The tribunal therefore concludes that the ground provided for in subparagraph 117(2)(c)(ia) of the Act is established.

Just and equitable

1. The requirement to consider whether a departure would be just and equitable directs attention to what is fair to the parents and their children. Regard must be had to a variety of factors such as the needs of the child, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

2. Ms McBreen’s 2017, 2018 and 2019 taxable incomes were $7,523, $37,778 and $23,544 respectively. The tribunal accepts Ms McBreen’s evidence that her 2018 income is artificially inflated as a consequence of nine months back pay of income support (for the 2017 financial year). In her Statement of Financial Circumstances dated 28 December 2019 Ms McBreen declares interest income of $58 per week and newstart allowance of $300 per week. She owns her own unencumbered home, which she estimates is valued at $950,000, has savings of $30,000, superannuation valued at $250,000, holds shares valued at $23,000, a car valued at $5,000 and household contents valued at $8,000. Her liabilities total $18,500, including a HECS debt of $14,000. She reports average weekly expenses of $1,647, however, this includes a line item of $400 per week for household repairs, which she states are urgently required. Her calculation also includes $90 per week for holidays, which she states she does not actually spend given her straitened financial circumstances. The tribunal finds that her actual household expenses are in the vicinity of $1,100 per week and about two thirds of these costs relate to her care of the children.

3. As stated above, Mr McBreen completed his Statement of Financial Circumstances on 13 January 2020. He declares $1,500 per week in income from [Business 1], $534 in rental income and dividends and $268 per week from the MFT. He reports a half share in the family home, which he shares with his partner, valued at $675,000 and his own interest in an investment property valued at $600,000. His share of the mortgage on the family home in addition to the investment property mortgage total $993,000. He reports savings of about $1,000, shares valued at $18,000, a life insurance policy valued at $525,000, a motor vehicle valued at $10,000 as well as household contents valued at $50,000. He also holds $562,000 in superannuation. His liabilities also include $483 in unpaid tax and $3,360 in credit cards. His weekly personal expenditure is $1,089 and his average weekly household expenses total $2,136, not including a $50 per week tithe to his church evident in his bank statements.

4. Mr McBreen contends that Ms McBreen’s earning capacity is about $80,000 per annum, and that it is only fair that the administrative assessment reflects her earning capacity. 

5. In order for a person to be assessed in accordance with their earning capacity rather than their actual income, the three tests set out in subsection 117(7B) of the Act must be satisfied:

   In having regard to the earning capacity of a parent of the child, the court may determine that the parent's earning capacity is greater than is reflected in his or her income for the purposes of this Act only if the court is satisfied that:

   (a)   one or more of the following applies:

   (i)the parent does not work despite ample opportunity to do so;

   (ii)the parent has reduced the number of hours per week of his or her employment or other work below the normal number of hours per week that constitutes full‑time work for the occupation or industry in which the parent is employed or otherwise engaged;

   (iii)the parent has changed his or her occupation, industry or working pattern; and

   (b)   the parent's decision not to work, to reduce the number of hours, or to change his or her occupation, industry or working pattern, is not justified on the basis of:

   (i)the parent's caring responsibilities; or

   (ii)the parent's state of health; and

   (c)   the parent has not demonstrated that it was not a major purpose of that decision to affect the administrative assessment of child support in relation to the child.

6. It is not in dispute that Ms McBreen has a degree in [Discipline 1] and [Discipline 2] and resigned from paid employment upon the birth of the parties’ first child. She then developed her own [software] for use in the retail industry, which operated through [Company 1]. Upon separation Ms McBreen returned to part-time [Occupation 1] work, sourced from a previous employer. In 2018 she enrolled in full-time studies as a [Occupation 2] and completed her studies in late 2019. The tribunal finds that Ms McBreen is currently not employed, though accepts her evidence that she has sought casual employment with local [employers]. The tribunal is satisfied that Ms McBreen has changed her occupation. Subparagraph 117(7B)(a)(iii) of the Act is satisfied.

7. Given the ages of the children in her care the tribunal is not persuaded that her caring responsibilities prevent her from working. There is also no medical evidence before the tribunal to support a finding that her state of health prevents her from working. Paragraph 117(7B)(b) of the Act is satisfied.

8. The tribunal next considered whether Ms McBreen has not demonstrated that it was not a major purpose of her decision to change her occupation to affect the administrative assessment. Ms McBreen states that she undertook an accelerated program to finish her [degree] within two years. She stressed that had she wanted to affect the administrative assessment, she would not have placed herself under so much pressure and instead would have completed the course over an extended period. The tribunal considered that application of her adjusted taxable income when studying and compared it to her previous part-time [Occupation 1] work in 2016. Undertaking full-time study resulted in an annual increase in Mr McBreen’s child support liability of $147. The tribunal is satisfied that Ms McBreen’s statements about the reasons behind her decision to change her occupation do not demonstrate that the effect on the administrative assessment of child support was indeed a major purpose behind her decision. Thus, the third criteria in subsection 117(7B) of the Act is not met.

9. The tribunal concludes that Ms McBreen’s adjusted taxable income accurately reflects her income and financial resources. As the tribunal understands it, Mr McBreen contends that Ms McBreen has not only misrepresented the value of her home by about $350,000, but that it is not fair or just that she is able to live debt free and is not required to liquidise her assets to meet the costs of the children. The tribunal considered Mr McBreen’s submissions on this point, but was not persuaded that it was just or equitable that Ms McBreen’s adjusted taxable income should be amended on the basis of her assets. Certainly, from Ms McBreen’s account of household expenditure it is apparent that she is reliant on drawing from her savings to meet both the general household costs and her costs in caring for the children.  

10. There is no dispute between the parents that the children are being educated at Catholic schools, which is consistent with the intention of both parents. The tribunal finds that the cost of educating the children in 2019 was $6,605.11 and in 2020 it will be cost $4,739 to educate [Child 1] and $1,810.58 to educate the primary school children. Clearly these costs are significantly higher than public school costs already factored into the assessment. In circumstances such as these, the tribunal would normally find it equitable to have each parent contribute based on the percentage of their income. However, given that the parties have a long standing agreement that they shall equally contribute to the education costs,  taking into account Ms McBreen’s costs in caring for the children and Mr McBreen’s child support liability upon implementation of the tribunal’s decision, the tribunal has determined that it is not appropriate in the circumstances to determine that Mr McBreen should contribute more than 50% of the children’s education costs.

11. There is no evidence that the children have out of the ordinary expenses (apart from their private education) and both parents report that the children are in good physical health. It is noted that Ms McBreen has not declared any significant out of pocket expenses in accessing counselling for the children. There is no evidence that the children are in receipt of independent income or financial resources and the tribunal finds accordingly.

12. The tribunal has determined that it is appropriate to amend Mr McBreen’s adjusted taxable income to $204,383 per annum from the date Ms McBreen lodged her departure application, being 23 March 2019. Given the tribunal’s conclusion regarding Mr McBreen’s income and financial resources, it is satisfied that he has capacity to meet his annual liability and that these funds are necessary for Ms McBreen to adequately provide for the children. Mr McBreen states that should it be determined that his rate of child support remains unchanged, he would be forced to sell his assets and it would significantly impact on his capacity to provide for the children. The tribunal is not so persuaded. Certainly, he is up to date with his child support payments and there is no evidence that payment at the rate as determined by the Department and this tribunal has placed him in a situation of hardship. In fact, not only did he continue to meet his child support liability, but during the same period he purchased a new home with his partner whilst also retaining his investment property. The tribunal concludes that the payment of his ongoing child support liability will not cause him undue hardship.

1. The tribunal is satisfied that it is just and equitable to depart from the assessment on the basis of Mr McBreen’s income and financial resources (as assessed by the tribunal) until a terminating event occurs in relation to [Child 1] (being December 2024 at the latest). This period of departure will provide certainty to the parties and will minimise the need for repeat proceedings.

2. The tribunal is also satisfied that for the period 20 December 2018 to 22 March 2019 that Mr McBreen’s provisional income of $93,968 should be used in the administrative formula. Ms McBreen was not cognisant of the fact that Mr McBreen’s taxable income would significantly reduce in the 2018 financial year when compared to previous years. The tribunal is satisfied that she did not rest on her rights upon being notified of Mr McBreen’s 2018 adjusted taxable income.

3. The tribunal is satisfied that the administrative assessment is unfair given Mr McBreen’s income and financial resources and this results in an unjust and inequitable level of child support given the circumstances of each parent. For all the reasons above, the tribunal finds it just and equitable to depart from the administrative assessment.

Otherwise proper

1. The requirement to consider whether a departure would be otherwise proper directs attention to what is fair to the community. It is necessary to consider the effect of any departure from the administrative assessment on entitlements to income-tested pensions, allowances and benefits. Parents, rather than the community, have the primary duty to maintain a child. Ms McBreen is in receipt of income-tested benefits. Departing from the administrative assessment by increasing the child support payable by Mr McBreen will result in a more appropriate apportionment of financial responsibility between the parents and the community.

2. The determination is otherwise proper.

DECISION

The tribunal sets aside the decision under review and, in substitution, decides that

·from 1 December 2018 to 22 March 2019 Mr McBreen’s adjusted taxable income is varied to $93,968;

·for the period 23 March 2019 until a terminating event occurs in relation to [Child 1], Mr McBreen’s adjusted taxable income is varied to $204,383 per annum and is to be inflated annually commencing on 1 July 2020 and each year thereafter by the Consumer Price Index Amount Weighted Average for the preceding March quarter.